Taxpayers will pay £40 billion for mortgage bailout

As part of an emergency rescue plan ministers may be willing to underwrite billions of pounds worth of mortgages according to a recent report, and this could end up costing the taxpayer around £40 billion. The scheme would see the type of guarantee that was offered to Northern Rock extend to other home loans. The scheme is part of the plan that Gordon Brown has been drafting to try and tackle the economic downturn.

It is thought that the scheme could be brought in as early as next month. However, critics are stating that offering to back up the mortgage market with taxpayer’s money would prove high risk. There are a number of risks, which the Treasury is apparently aware of, and this includes encouraging banks to behave recklessly with taxpayers’ money to fall back on.

Sir James Crosby, formerly the Halifax boss, is looking at ways in which the government can help to boost the flagging mortgage and housing markets. An insider from the Treasury stated: ‘One major problem is a lack of mortgage finance, so if there is anything we can do to help with that we should think about it.’ He added: ‘If Sir James comes back with something credible that doesn’t expose the taxpayer to too much risk then we would be wrong not to consider it.’

The suggestion from Crosby involved the government guaranteeing loans from lenders on a temporary basis, and the guarantee would be provided by the Treasury and the taxpayer, which could help to boost lending and revive confidence amongst lenders.

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